Chen & Ors v Karandonis

[2003] HCATrans 502

[2003] HCATrans 502

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S32 of 2003

B e t w e e n -

DANIEL CHEN

First Applicant

KINGSLEY CHOU

Second Applicant

LU MIN YONG

Third Applicant

and

JOHN KARANDONIS

Respondent

Application for special leave to appeal

McHUGH J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 2 DECEMBER 2003, AT 10.26 AM

Copyright in the High Court of Australia

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MR N.C. HUTLEY, SC:   May it please the Court, I appear with my learned friend, MR R.D. MARSHALL, for the applicant.  (instructed by Velik Solicitors)

MR P.W. NEIL, SC:   May it please the Court, I appear with my learned friend, MR I.W. RAINE, for the respondent.  (instructed by Debney Williamson)

McHUGH J:   Yes, Mr Hutley.

MR HUTLEY:   The applicant challenges each of these bases identified by the Court of Appeal for awarding compensatory damages.  Those two bases formed the necessary precondition for the award of the exemplary damages.  The first award of compensatory damages was for the sum of $53,333, the loss of salary payable to the respondent for work whilst in China, which I will call the “salary claim”, whilst the second was an award of $120,000, being damages for the loss of a 20 per cent interest in a company known as Total Win, which was promised to the respondent.

GUMMOW J:   Now, what is the point about Armory v Delamirie?

MR HUTLEY:   Your Honour, it is this ‑ ‑ ‑

GUMMOW J:   The other point is, if there is a point, it is a miscarriage point.

MR HUTLEY:   Yes, I accept that, your Honour.  The Armory v Delamirie point is this.  The Court of Appeal made a finding of fact, which was consistent with the findings at first instance, that there was no evidence as to the value of the Chinese joint venture, that is, Total Win, and we say that was the beginning and end of the inquiry.  The Court of Appeal then said that Armory v Delamirie, together with the principle they identified from the decision in Houghton v Immer and, as it were, her Honour Justice Beazley said, “emboldened” by the statement of Lord Brougham in Docker v Somes – your Honour will find that at 168 of the application book ‑ went on to engage in a process to determine this damage, which we say was not supported by the principle in Armory v Delamirie.

Armory v Delamirie, we say, is a principle which has been considered, for example, in the United States Supreme Court, which says that where there is an interference by a defendant with the capability of the plaintiff to a plaintiff to establish damages for loss of the value of something, the court will accept, as it were, the best evidence, a reasonable estimate of the loss, to achieve that.  But it has to be reasonable and, as the United States Supreme Court says, it cannot be a matter of speculation or, as it were, guesswork.  What we say is that the Court of Appeal, by, in effect, putting together a series of an exhortation of the Lord Chancellor, the statement of a “robust” approach from Houghton v Immer, together with Armory v Delamirie, has really ‑ ‑ ‑

GUMMOW J:   Would you be challenging Houghton v Immer?

MR HUTLEY:   Your Honour, we say it is of a piece.  It, in effect, is the manner which underlies – the approach which seems to have evolved in the Court of Appeal with Armory v Delamirie has really been elevated into a process of what we say is making damages assessment akin to punishment.  As was observed by Justice Hayne in this Court, in the Placer (Granny Smith) Case, this Court has not had an opportunity to consider the extent to which a court can go in assessing damages, in a circumstance where there is a difficulty of proof and that difficulty is a difficulty which can, in part, be traced to the defendant.

What happened here, also, is that the Court of Appeal has taken that principle even further.  It appears to have concluded that once it can be established that the defendant has in some way contributed to making assessment of damages a difficult process, each factual finding along the way to determining damages is to be approached in the same manner.  That is best exemplified, your Honours, by the approach which was taken to what her Honour called the range of values attributable to the Total Win loss. 

There was evidence, which is set out in paragraph 18 of the applicant’s summary of argument, about the ownership of the Total Win shares – paragraph 12, your Honours will find it at page 204 of the application book – as to the proposal to sell the shares in Himway by Mr Chou.  The shares in Himway were owned by Mr Chou and his wife.  The only evidence about the proposal to sell it is extracted in paragraph 12 at page 204. 

Her Honour Justice Beazley concluded that she was unable to determine whether Mr Chou was referring to the sale of his half of the shares or all the shares – that is, his and his wife’s.  Her Honour, applying the robust approach, concluded that because she was unable to determine whether it was all or half the shares, that, in fact, there were two known matters constituting the range, the range being HK$1.5 million to HK$3 million.

Now, whatever else the position may be, we say, firstly, that is not a range.  One is right and one is wrong.  Secondly, we submit that, as is apparent from the submissions, no reliance was placed upon this at all by the respondent, either at first instance or in the Court of Appeal, until it was raised by the Court of Appeal after the conclusion of argument.

McHUGH J:   But what is the special leave point, Mr Hutley?  Does it come to anything more than this, that her Honour took the view that the value of the interest could never be satisfactorily assessed, given the manner in which your clients had conducted the affairs of the various corporate entities involved in the Karandonis shoe business?  It is just a question of judgment, is it not?

MR HUTLEY:   Your Honour, the question is the limits to which the Court can go in forming that judgment.  Making that assumption against myself, your Honour, our position was that this case had not been run at first instance, but set that aside.  The question is, as was observed by Justice Hayne, the limit to which a court can go.  This, we submit, amounts to no more than speculation.  We have the situation where, in effect, the range of losses is constituted by two sums, one of which must be wrong.  There is no range at all.  Now, we say if Houghton v Immer, together with Armory v Delamirie, entitles a court to engage in that form of process, then it should be acknowledged that an analysis of damages in this field is really a form of punishment.

McHUGH J:   Well, not necessarily.  There is a New South Wales damages case called Callaghan v William C Lynch, which says that you take into account these possibilities, which will sometimes border on speculation as to what will happen to somebody in the future.

MR HUTLEY:   But, your Honour, this was an assessment of what the value of a lost chance was on the basis of material which, on the face of the evidence before the Court of Appeal, one, did not equate with the lost chance.  Himway was not Total Win.  Himway had assets which were not Total Win’s assets.  There was evidence that there were debts associated with it, which the court discounted.  Then the court set up a range, being the range of two matters, one of which must be wrong.

McHUGH J:   Yes, but, Mr Hutley, it seems to me that all you are saying is that the application of the Armory v Delamirie principles in Houghton v Immer and Docker v Somes was wrong in the particular circumstances of this case, but how can we lay down some a priori principle or even formula that would achieve what you want to achieve, not only in this case, but generally?

MR HUTLEY:   Your Honour, firstly, the Court of Appeal seems to have elided a series of different questions in Houghton v Immer.  There is what is called a “robust approach”, together with the exhortation of Lord Brougham, together with Armory v Delamirie.  As the Supreme Court of the United States has said, we cannot engage in a process of what is called speculation.  One has to engage in a process of rational analysis to come to a reasonable conclusion.  But, if the principles as stated by the Court of Appeal are correct, there is a complete departure from that in this field.

McHUGH J:   I am not sure they have stated any principles, have they?  It is an analysis of the evidence.  You have to make some judgments on the evidence.

MR HUTLEY:   Your Honour, when one comes down to the actual evidence, one has this position.  The Court of Appeal, in effect, said that because there was uncertainty in the evidence of, for example, Mr Chou, as to whether it was all or some of the shares – and accepting for a moment there was an uncertainty – we would say there was not, but accepting for a moment – the court then says, “We are entitled to assume that that creates a range of two possibilities”.

Now, in our respectful submission, that simply cannot be the law.  I mean, this was not a factual matter which was inquired to at first instance, it was not an uncertainty of our making, because the respondent did not in any way rely on it.  But the Court of Appeal seems to have considered, because we were in, in effect, Armory v Delamirie territory, every factual inquiry along the way, irrespective of our relationship with its uncertainty, had to be determined adverse to us – adverse to an extent, we submit, that one, in effect, can create a range out of something which is incapable of being a range.

The second basis for the damages calculation in this thing was the value of the machinery.  Now, here we had a situation where the court found that the machinery was sold, found that it was not paid for, then said that the value of the machinery was to be attributed to my client, as some estimate of the value of this joint venture, but ignoring the fact that, after the sale, the debt had not been discharged.  Therefore, one, in effect, took the net position, adjusted the value of the machinery. 

So what our damages calculation amounted to was this.  There were what her Honour described as three “knowns”:  the lower end of what her Honour called the range of the share sales, the upper end of the range, and a value for the machinery.  Then her Honour applied Armory v Delamirie, or purported to – her Honour said she was – to, in effect, attribute the upper end of that so‑called range by way of damages.

In our respectful submission, if the principles – this “robust approach” and the other matter which I have indicated – justify that process, then the process of calculation of damages in this sort of field has moved beyond anything which to date has been considered appropriate.  As her Honour recognised, every case on the application of Armory v Delamirie to date had involved the applicant embarking on an attempt to prove something where there was an inhibition on proving it precisely because of the conduct of the defendant.

McHUGH J:   Yes, but it does not seem to me, at the moment, that you go beyond saying that the application of the Armory v Delamirie principle in this particular case was wrong.  Not everything in the Law Reports and not everything in judges’ reasons is law.

MR HUTLEY:   I accept that, your Honour, but what we say is that there has developed in the Court of Appeal this approach that Armory v Delamirie justifies what is described as a “robust approach”, which seems to be a process whereby the court can, in effect, value things by reference to matters which practically have, as the court really recognised, no rational relationship to the ultimate inquiry, in circumstances where the plaintiff at first instance had placed no reliance on these matters at all.

McHUGH J:   Yes, but you get this situation in Howe v Teefy, in valuing the winnings you might get from a race horse.  You could not get anything more speculative than that, and yet ‑ ‑ ‑

MR HUTLEY:   As Justice Hayne observed in the case of Granny Smith, the extent to which one can engage in speculation in this sort of field is a matter which would require consideration by the court. It is set out in our submissions, your Honour, paragraph 38 of his Honour’s judgment, which is reported now in 196 ALR 257. The relevant passage is at page 266. His Honour says:

It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence.  In the former kind of case it may be that estimation, if not guesswork –

et cetera, and then goes on.  He says that some occasions consider that.  Well, your Honour, here we have a situation where there was a clear finding that there is no evidence of the relevant matter.

We then have a process, in our respectful submission, of the Court of Appeal going no more than guesswork – beyond guesswork, in our respectful submission – and if it is justifiable, then, in our respectful submission, this Court should say that guessing is a permissible process of assessing damages in a circumstance like this, particularly if a Court of Appeal, an intermediate Court of Appeal, undertakes that guesswork process uninvited by any of the parties – although, obviously, we were given the chance to comment upon it – in circumstances where both parties had agreed that there was no acceptable evidence of this question.  That, in our respectful submission, is the point. 

McHUGH J:   Thank you, Mr Hutley.  No, we need not hear you, Mr Neil.

The applicant relies on two grounds in support of the application for special leave to appeal.  The first ground upon which special leave is sought arises from an alleged error by the Court of Appeal arising from its misapprehension as to the basis on which the appeal before it was conducted.  We are not satisfied that there are sufficient prospects of overturning the holding that the unpaid salary was recoverable by the present respondent to warrant a grant of special leave on this ground.

The second ground concerns the application of principles as to the onus of proof deriving from Armory v Delamirie (1722) 93 ER 664. We are not satisfied that any point of general significance necessarily arises in respect of that matter or that there are sufficient prospects of establishing that the Court of Appeal erred in its understanding of Armory and other authorities which have followed it that would warrant a grant of special leave.  Accordingly, special leave is refused with costs.

AT 10.45 AM THE MATTER WAS CONCLUDED